In a remarkable turn of events, S&P Global Ratings has revised Nigeria’s outlook from negative to stable, attributing this positive shift to the decisive fiscal reforms championed by President Bola Tinubu. This significant alteration not only signals a potential turning point for the largest economy in Africa but also ignites a sense of optimism within financial circles.

The prestigious credit ratings agency, known for its discerning evaluations, has gone beyond merely upgrading the outlook. S&P has also upheld Nigeria’s ‘B-/B’ rating, underscoring the transformative potential of recent institutional changes that have been set in motion.

Since taking office in May, President Tinubu’s administration has set a brisk pace in implementing a series of crucial reforms. Among these measures, the elimination of the costly fuel subsidy regime stands out prominently. 

In an official statement, S&P Global Ratings acknowledged the rapid strides made by the Nigerian government in introducing “fiscal and monetary reforms.” The agency’s analysis suggests that these initiatives could gradually breathe new life into public finances and enhance the balance of payments, potentially opening doors for increased foreign investment and bolstered economic growth.

A cornerstone of these reforms was the abolition of the petrol subsidy, a decision that President Tinubu claims has already resulted in savings exceeding a remarkable 1 trillion naira ($1.32 billion) within a span of slightly over two months. While these measures have been embraced by the international investment community, they have not come without their challenges. Critics have voiced concerns over rising costs, a situation compounded by ongoing inflation that has gripped Nigeria since 2016.

Economists at the World Bank have projected a potential windfall of up to 3.9 trillion naira in the current year, a direct result of these comprehensive reforms. However, the bank has also sounded a note of caution, warning of the possible short-term inflationary pressures that could emerge as a consequence.

Frank Gill, S&P’s sovereign analyst, had earlier alluded to the importance of these reforms, closely monitoring Nigeria in anticipation of the review conducted on August 4. The confirmation of a stable outlook now validates the positive strides Nigeria is taking under the leadership of President Tinubu.

This recent development marks a dramatic departure from February, when S&P maintained the ‘B-/B’ credit rating but adjusted the outlook to negative. In a similar vein, Fitch, a competing credit rating agency, echoed this sentiment by affirming Nigeria’s standing at ‘B-‘ in May.

As Nigeria embarks on this ambitious journey of reform, all eyes remain fixed on the outcomes. With an economy as dynamic as Nigeria’s, the ripples of these fiscal changes have the potential to create waves of progress that extend far beyond its borders. As the nation charts its course toward economic rejuvenation, the world watches with eager anticipation, ready to witness the fruits of these visionary reforms.

By: Montel Kamau
Serrari Financial Analyst
6th August, 2023

photo source Google